Size corrected significance tests in seemingly unrelated regressions with autocorrelated errors

Abstract

Refined asymptotic methods are used to produce degrees-of-freedom-adjusted Edgeworth and Cornish-Fisher size corrections of the t and F testing procedures for the parameters of a S.U.R. model with serially correlated errors. The corrected tests follow the Student-t and F distributions, respectively, with an approximation error of order O(τ3), where τ = 1/√T and T is the number of time observations. Monte Carlo simulations provide evidence that the size corrections suggested hereby have better finite sample properties, compared to the asymptotic testing procedures (either standard or Edgeworth corrected), which do not adjust for the degrees of freedom.